Question: The LIFO conformity rule requires companies that apply LIFO for income tax purposes to also use that
same method for their financial reporting to investors, creditors, and other decision makers. Is the information
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submitted to the government for income tax purposes not always the same as that presented to decision makers in
a set of financial statements? Reporting different numbers seems unethical.
Answer: In jokes and in editorials, companies are often derisively accused of “keeping two sets of books.” The
implication is that one is skewed toward making the company look good (for reporting purposes) whereas the
other makes the company look bad (for taxation purposes). However, the existence of separate records is a
practical necessity. One set is kept based on applicable tax laws while the other enables the company to prepare
its financial statements according to U.S. GAAP. Different rules mean that different numbers result.